Cryptocurrency was due a serious market crash, after the overheated speculation of the last quarter of 2017 and the altcoin run-up in early January of 2018. But that doesn’t make it any easier to see your crypto assets freewheeling into the void, along with your plans for a beach home in Aruba.
Especially for rookie investors, drawn by the magnet of crypto wealth and the accessibility of exciting projects, this will be a new experience. And it can be truly stomach-churning. We don’t have financial advisors, or diversified portfolios of stocks and bonds to hedge against inflation or deflation – we have things we believe in, and our belief is being tested.
Whatever the reason behind the current implosion – whether it be Tokyo Whales, governmental regulation, EOS dumping thousands of Ether, or plain old hyper-valuation of assets combined with massively increased portfolio diversification opportunities (too many ICOs, in other words) – there are ways to ride this storm, and even profit from it.
#1 – Don’t Panic
Douglas Adams may have hitch-hiked his way onto the next astral plane, but his advice for adventurers remains true. When you panic, you quite literally make worse decisions. Researchers at the University of Pittsburgh, published in the Journal of Neuroscience, explain that “…under anxiety, decision making may be skewed by salient and conflicting environmental stimuli at the expense of flexible top-down guided choice.. anxiety selectively shuts down certain connections, making it more difficult for the brain to screen out irrelevant information and make better decisions.”
The Considered Action: sit and think before you buy or sell. Don’t allow market emotion to sway your personal ability to make sound, careful decisions.
#2 – Avoid Day Trading
On any normal day in cryptoland you might trade ten times. Or twenty. Or fifty. On any normal day.
Today isn’t normal. None of the rules apply. BTC might be next. ETH might bounce back in seconds. Flash crashes and recoveries of individual stocks are more common WITHIN the context of an overall market crash, as stop losses are triggered and nervous investors dump perfectly good low-cap assets. None of the usual resistance and support conditions can be trusted – so trading between coins can be a recipe for disaster.
The Considered Action: enter or exit. Don’t vacillate between the two.
#3 – Have A Plan For Loading Up
It’s incredibly tempting to look at the movers and losers on CoinMarketCap and see a coin that seems to have nowhere to go but back up. But is scraping the bottom of the barrel the best bet in a down market? Chris Mayer of the Bill Bonner Private Portfolio suggests that “it’s usually best to buy what you know, because it’s hard to pick the bottom of the market”.
Instead, make a plan for the token you really want in your portfolio – and just as you set an exit price (and if not, why not?) set an entrance price. But it, and forget it until the market recovers. That’s what Buffett did with Goldman Sachs in 2008, and that worked out pretty well for him…
The Considered Action: buy only what you know and wish you had, or had more of.
#4 – Stop Obsessively Refreshing Delta Or Blockfolio
This may seem obvious, but just as the cryptocurrency markets are subject to positive cognitive bias they are also subject to negative bias. Essentially, checking and re-checking your portfolio reinforces the information you think you have, and therefore the perceived solidity of the decisions you intend to make. Far better to make those decisions on the fundamentals of a given token than on its price at this second, in this minute, on this day.
The Considered Action: go for a walk, without your phone.
#5 – Life Is Not A Numbers Game
Whatever you had is gone. Whatever you will have, isn’t yet real. Whatever you have, you have. It may sound like the Dalai Lama just took over my keyboard, but a market crash is truly an opportunity to engage in some serious Zen thinking – and that’s a good thing.
When your portfolio was worth eight times what it’s worth today, what were the real differences in your life? Maybe you had plans for the money. Maybe you had ideas for a business. And now that it’s (hopefully, temporarily) vanished back into the Ether, can you still have those plans? Absolutely. You may just have to wait, or change them at a later date when the picture is clearer.
Today, you don’t need to do anything (unless you bought on a Chase card and opened a margin account, in which case we offer our condolences to your credit score). You haven’t lost a leg. Your life is not different. Be cool.
Considered Action: think about something more important than money, and then give it a hug.
#6 – Remember The Reason You’re Here
We all want to make money in cryptocurrency, and a market crash puts a dent in that ambition. But we’re also here for other reasons – because we believe in the democratizing power of decentralized technologies; because we think that blockchain will benefit humanity; because we are amazed at the potential for a completely new Internet, or fair and accountable voting, or companies that empower and enable us to rethink the biggest problems facing society, like climate change or food safety.
A commentator on Reddit noted something to the effect of “I’ll get out of crypto when 10,000 people a week stop joining r/cryptocurrency.”
The Considered Action: remind yourself that the technology is still there today, and will be tomorrow.
#7 – Consider Adoption
When the Dow Jones collapses, there are global consequences. Trillions are wiped out of existence, and the biggest corporations in the world are bailed out by governments to prop up economies that are too big to fail. The wealth of the world is tied up in these systems and exchanges, and the weight of their failure is catastrophic.
This market crash is barely a blip on the world radar. A tenth of a percent hike in interest rates in Germany will have more impact on the global economy than this selloff.
Adoption in cryptocurrency is so low, and there are so few of us relative to the number of people who hold bank accounts with a major bank, that this is a nothing-burger in the wider scheme of things – and if anything, it might actually serve to bring the entire market back within the reach of new participants. It might embolden institutional investors who see companies evaluated on fundamentals and not speculation. And so it might actually increase our market penetration in the long-term, thereby increasing the overall value of the assets within it.
The Considered Action: hold on to assets that may well have even more value with increased market participation.